UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended JUNE 30, 2002.
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
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Commission file number 0-19431
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ROYAL APPLIANCE MFG. CO.
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(Exact name of registrant as specified in its charter)
OHIO 34-1350353
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7005 COCHRAN ROAD, GLENWILLOW, OHIO 44139
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(Address of Principal Executive Offices) Zip Code
(440) 996-2000
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(Registrant's telephone number, including area code)
Indicate, by check mark, whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ] .
Indicate the number of shares outstanding of each of the issuer's
classes of common shares, as of the latest practicable date.
Common Shares, without par value 12,816,452
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(Class) (Outstanding at August 12, 2002)
The Exhibit index appears on sequential page 21.
1
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
INDEX
Page
Number
------
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
------ --------------------
Consolidated Balance Sheets - 3
June 30, 2002 and December 31, 2001
Consolidated Statements of Operations - 4
Three and six months ended June 30, 2002 and 2001
Consolidated Statements of Cash Flows - 5
Six months ended June 30, 2002 and 2001
Notes to Consolidated Financial Statements 6 - 12
Item 2 Management's Discussion and Analysis of Financial 13 - 18
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Condition and Results of Operations
-----------------------------------
Part II OTHER INFORMATION
Item 4 Submission of Materials to a Vote of Security Holders 19
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Item 6 Exhibits and Reports on Form 8-K 19
------ --------------------------------
Signatures 20
Exhibit Index 21
*Numbered in accordance with Item 601 of Regulation S-K
2
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
------ ---------------------
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
2002 2001
--------- ---------
ASSETS (Unaudited)
Current assets:
Cash $ 1,966 $ 3,421
Trade accounts receivable, net 29,935 35,986
Inventories 55,796 50,807
Deferred income taxes 5,027 4,549
Prepaid expenses and other 2,625 1,636
--------- ---------
Total current assets 95,349 96,399
--------- ---------
Property, plant and equipment, at cost:
Land 1,541 1,541
Building 7,777 7,777
Molds, tooling, and equipment 50,048 52,031
Furniture, office and computer equipment and software 15,200 12,154
Assets under capital leases 3,171 3,171
Leasehold improvements and other 7,058 7,456
--------- ---------
84,795 84,130
Less accumulated depreciation and amortization (49,358) (46,556)
--------- ---------
35,437 37,574
--------- ---------
Computer software and tooling deposits 1,801 4,405
Other 2,727 2,066
--------- ---------
Total assets $ 135,314 $ 140,444
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 33,443 $ 27,433
Accrued liabilities:
Advertising and promotion 7,132 11,196
Salaries, benefits, and payroll taxes 3,311 7,258
Warranty and customer returns 9,300 9,950
Income taxes - 1,370
Other 6,853 6,479
Current portions of capital lease obligations 156 147
--------- ---------
Total current liabilities 60,195 63,833
--------- ---------
Revolving credit facility 33,300 32,000
Capitalized lease obligations, less current portion 1,910 1,978
--------- ---------
Total long-term debt 35,210 33,978
Deferred income taxes 4,011 4,011
--------- ---------
Total liabilities 99,416 101,822
--------- ---------
Commitments and contingencies (Note 3) - -
Shareholders' equity:
Common shares, at stated value 215 214
Additional paid-in capital 45,078 44,167
Retained earnings 69,245 70,489
--------- ---------
114,538 114,870
Less treasury shares, at cost (12,837,600 and 12,365,700 shares
at June 30, 2002 and December 31, 2001, respectively) (78,640) (76,248)
--------- ---------
Total shareholders' equity 35,898 38,622
--------- ---------
Total liabilities and shareholders' equity $ 135,314 $ 140,444
========= =========
The accompanying notes are an integral part of these financial statements.
3
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
------ ---------------------
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $ 89,390 $ 79,512 $ 180,554 $ 182,572
Cost of sales 73,046 64,243 145,862 146,131
--------- --------- --------- ---------
Gross margin 16,344 15,269 34,692 36,441
Selling, general and administrative expenses 18,095 15,662 35,844 32,209
--------- --------- --------- ---------
(Loss) income from operations (1,751) (393) (1,152) 4,232
Interest expense, net 291 484 619 1,223
Receivable securitization and other expense, net 12 200 153 715
--------- --------- --------- ---------
(Loss) income before income taxes (2,054) (1,077) (1,924) 2,294
Income tax (benefit) expense (725) (369) (680) 828
--------- --------- --------- ---------
Net (loss) income $ (1,329) $ (708) $ (1,244) $ 1,466
========= ========= ========= =========
BASIC
Weighted average number of common
shares outstanding (in thousands) 13,049 13,812 13,146 13,769
(Loss) earnings per share $ (0.10) $ (0.05) $ (0.09) $ .11
DILUTED
Weighted average number of common
shares and equivalents outstanding (in thousands) 13,049 13,812 13,146 14,306
(Loss) earnings per share $ (0.10) $ (0.05) $ (0.09) $ .10
The accompanying notes are an integral part of these financial statements
4
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
------ --------------------
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months
Ended June 30,
----------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net (loss) income $ (1,244) $ 1,466
-------- --------
Adjustments to reconcile net (loss) income to
net cash from operating activities:
Depreciation and amortization 8,829 7,316
Compensatory effect of stock awards 555 275
Deferred income taxes (478) (562)
(Increase) decrease in assets:
Trade accounts receivable, net 6,051 17,059
Inventories (4,989) (6,229)
Prepaid expenses and other (989) (83)
Other (1,153) (1,769)
Increase (decrease) in liabilities:
Trade accounts payable 6,010 (3,291)
Accrued advertising and promotion (4,064) (3,816)
Accrued salaries, benefits, and payroll taxes (3,947) 1,083
Accrued warranty and customer returns (650) (200)
Accrued income taxes (1,370) (663)
Accrued other 374 (468)
-------- --------
Total adjustments 4,179 8,652
-------- --------
Net cash from operating activities 2,935 10,118
-------- --------
Cash flows from investing activities:
Purchases of tooling, property, plant, and equipment, net (6,199) (5,653)
Decrease (increase) in tooling deposits and other 2,604 (2,292)
-------- --------
Net cash from investing activities (3,595) (7,945)
-------- --------
Cash flows from financing activities:
Proceeds (payments) on bank debt, net 1,300 (1,100)
Proceeds from exercise of stock options 356 7
Payments on capital lease obligations (59) (66)
Repurchase of common stock (2,392) (553)
-------- --------
Net cash from financing activities (795) (1,712)
-------- --------
Net (decrease) increase in cash (1,455) 461
-------- --------
Cash at beginning of period 3,421 704
-------- --------
Cash at end of period $ 1,966 $ 1,165
======== ========
Supplemental disclosure of cash flow information: Cash payments for:
Interest $ 691 $ 1,389
======== ========
Income taxes, net of refunds $ 1,169 $ 2,054
======== ========
The accompanying notes are an integral part of these financial statements.
5
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: BASIS OF PRESENTATION
The financial information for Royal Appliance Mfg. Co. and Subsidiaries
(the Company) included herein is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
consolidated statements of financial position as of June 30, 2002 and December
31, 2001, and the related statements of operations and cash flows as of, and for
the interim periods ended, June 30, 2002 and 2001. These condensed financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual report
(Form 10-K).
The results of operations for the three and six month periods ended June
30, 2002, are not necessarily indicative of the results to be expected for the
full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts and
related disclosures. Actual results could differ from those estimates.
Significant estimates include the allowance for doubtful accounts, the reserve
for returns and allowances, reserve for inventory obsolescense and
depreciation and amortization, among others.
Certain prior year amounts have been reclassified to conform to the 2002
presentation.
Net (loss) income per common share is computed based on the weighted
average number of common shares outstanding for basic earnings per share and on
the weighted average number of common shares and common share equivalents
outstanding for diluted earnings per share.
The Company's revenue recognition policy is to recognize revenues when
products are shipped. The Company's return policy is to replace, repair or issue
credit for product under warranty. Returns received during the current period
are expensed as received and a provision is provided for future returns based on
current shipments. All sales are final upon shipment of goods to the customers.
The Company's revenue recognition policy is in accordance with Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements."
In fiscal 2001, the Emerging Issues Task Force ("EITF") issued EITF No.
00-14, "Accounting for Certain Sales Incentives," and EITF No. 00-25, "Vendor
Income Statement Characterization of Consideration to a Purchaser of the
Vendor's Products or Services." These pronouncements address the recognition,
measurement and statement of operations classification for certain sales
incentives and are effective January 1, 2002. The Company adopted these
pronouncements in the first quarter of fiscal 2002 and as a result certain items
previously included in selling, general and administrative expenses were
reclassified as a reduction of net sales. Additionally, prior period amounts
were reclassified to conform to the new requirements. The impact of these two
issues resulted in a reduction of net sales of $891 and $935 for the quarters
ended June 30, 2002 and 2001, respectively and $1,589 and $2,397 for the
six-month periods ended June 30, 2002 and 2001, respectively. These amounts,
consisting principally of promotional allowances to the Company's retail
customers, were previously recorded as selling, general and administrative
expenses; therefore, there was no impact to net income or loss for either
period.
International operations, primarily Canadian, are conducted in their
local currency. Assets and liabilities denominated in foreign currencies are
translated at current exchange rates, and income and expenses are translated
using weighted average exchange rates. The net effect of currency gains and
losses realized on these business transactions is included in the determination
of net income.
6
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: BASIS OF PRESENTATION (CONTINUED)
The Company has used forward exchange contracts to reduce fluctuations in
foreign currency cash flows related to receivables denominated in foreign
currencies. The terms of the currency instruments are consistent with the timing
of the transactions being hedged. The purpose of the Company's foreign currency
management activity is to protect the Company from the risk that the eventual
cash flows from the foreign currency denominated transactions may be adversely
affected by changes in exchange rates. Gains and losses on forward exchange
contracts are deferred and recognized in income when the related transactions
being hedged are recognized. Such gains and losses are generally reported on the
same financial line as the hedged transaction. The Company does not use
derivative financial instruments for trading or speculative purposes.
Outstanding as of June 30, 2002 and December 31, 2001 were $990 and $0,
respectively, in contracts to purchase foreign currency forward. There is no
significant unrealized gain or loss on these contracts. All contracts have terms
of three months or less.
Costs incurred for producing and communicating advertising are expensed
during the period aired, including costs incurred under the Company's
cooperative advertising program.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. Inventories at June 30, 2002, and December
31, 2001, consisted of the following:
June 30 December 31
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Finished goods $48,907 $43,277
Work in process and purchased parts 6,889 7,530
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$55,796 $50,807
======= =======
NOTE 3: COMMITMENTS AND CONTINGENCIES
At June 30, 2002, the Company estimates having contractual commitments
for future advertising and promotional expense of approximately $9,000 including
commitments for television advertising through December 31, 2002. Other
contractual commitments for items in the normal course of business total
approximately $2,900.
The Company is self-insured with respect to workers' compensation
benefits in Ohio and carries excess workers' compensation insurance covering
aggregate claims exceeding $350 per occurrence.
7
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3: COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Hoover Company (Hoover) filed a lawsuit in federal court, in the
Northern District of Ohio (case #1:00cv 0347), against the Company on February
4, 2000, under the patent, trademark, and unfair competition laws of the United
States. The Complaint asserts that the Company's Dirt Devil Easy Steamer
infringes three utility patents and two design patents held by Hoover, and also
that the Easy Steamer design infringes the trade dress of Hoover's carpet
extractor products. Recently, the Court has dismissed charges of infringement
against Royal regarding one of the three utility patents, and has found that the
Dirt Devil Easy Steamer infringes one claim of a second utility patent. The
Court refused to grant summary judgment of infringement regarding the third
utility patent, and also reserved judgment as to the validity of both of the
remaining utility patents. Royal has motions currently pending to dismiss the
charges of infringement of the design patents and the trademark claims. The
trial date of November 4, 2002, has been established. Hoover seeks damages,
injunction on future production, and legal fees. The Company is vigorously
defending the suit and believes it is without merit. In accordance with
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies", a loss is reasonably possible, however, no range of potential
loss can be estimated at this time. If Hoover were to prevail on all its
remaining claims, it could have a material adverse effect on the consolidated
financial position, results of operations, or cash flows of the Company.
The Company filed a lawsuit in federal court, in the Northern District of
Ohio (case #1:01cv 2775), against The Hoover Company (Hoover) on December 10,
2001, under the patent, trademark, and unfair competition laws of the United
States. The Complaint asserts that Hoover infringes certain patents relating to
bagless technology held by the Company. The Company seeks damages, injunction on
future production, and legal fees.
The Company filed a lawsuit in federal court, in the Northern District of
Ohio (case #1:02cv 0338), against Bissell Homecare, Inc. (Bissell) on February
22, 2002, under the patent, trademark, and unfair competition laws of the United
States. The Complaint asserts that Bissell infringes certain patents relating to
bagless technology held by the Company. The Company seeks damages, injunction on
future production, and legal fees.
Bissell Homecare, Inc. (Bissell) filed a lawsuit in federal court, in the
Eastern District of Michigan (case #02cv71079), against the Company on March 20,
2002, under the patent, trademark, and unfair competition laws of the United
States. On April 25, 2002, the Company filed a motion to transfer the case from
the Eastern District of Michigan to the Northern District of Ohio. On June 19,
2002, the Court transferred the case (now #1:02cv 1358) to the Northern District
of Ohio. The Complaint asserts that the Company's Dirt Devil Easy Steamer and
Platinum Force Extractor products infringe certain design and utility patents
held by Bissell. Bissell seeks damages, injunction on future production, and
legal fees. The Company is vigorously defending the suit and believes it is
without merit. If Bissell were to prevail on all its claims, it could have a
material adverse effect on the consolidated financial position, results of
operations, or cash flows of the Company.
Black & Decker Inc. and Black & Decker (U.S.) Inc. (B&D) filed a
lawsuit in federal court, Northern District of Illinois (case #02C 1765) against
the Company on March 8, 2002, under the patent, trademark, and unfair
competition laws of the United States. The Complaint asserts that the Company's
Roommate and Touch-Up vacuum cleaners infringe upon certain patents held by B&D.
The Company settled this suit with a payment of $300,000 during the quarter
ended June 30, 2002 with a remaining $300,000 due in January 2003. Under the
settlement the Company has the right to continue to sell the products through
the third quarter of 2003.
8
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3: COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company filed a lawsuit in federal court, in the Northern District
of Ohio (case #1:02cv 1127), against White Consolidated, Ltd. (Eureka) on June
14, 2002, under the patent, trademark and unfair competition laws of the United
Sates. The Complaint asserts that Eureka infringes certain patents relating to
bagless technology held by the Company. The Company seeks damages, injunction on
future production, and legal fees.
The Company is involved in various other claims and litigation arising in
the normal course of business. The Company has product liability and general
liability insurance policies in amounts management believes to be reasonable.
There can be no assurance, however, that such insurance will be adequate to
cover all potential product or other liability claims against the Company. In
the opinion of management, the ultimate resolution of these actions will not
materially affect the consolidated financial position, results of operations, or
cash flows of the Company.
NOTE 4: DEBT
At June 30, 2002, the Company has a collateralized revolving credit
facility with availability of up to $70,000 and a maturity date of April 1,
2005. Under the agreement, pricing options of the bank's base lending rate and
LIBOR rate are based on a defined formula. In addition, the Company pays a
commitment fee based on a defined formula on the unused portion of the facility.
The revolving credit facility contains covenants, which require, among other
things, the achievement of minimum net worth levels and the maintenance of
certain financial ratios. The Company was in compliance with all applicable
covenants as of June 30, 2002. The revolving credit facility is collateralized
by the assets of the Company. As long as the Company remains in compliance with
all covenants, the revolving credit facility permits share repurchases and
dividends based on a defined formula up to $19,970 as of June 30, 2002.
The Company also utilizes a revolving trade accounts receivable
securitization program to sell without recourse, through a wholly-owned
subsidiary, certain trade accounts receivable. Under the program, the maximum
amount allowed to be sold at any given time is $30,000, seasonally adjusted to
$35,000 from September to December. At June 30, 2002, the Company had received
approximately $17,300 from the sale of trade accounts receivable that has not
yet been collected. The proceeds from the sales were used to reduce borrowings
under the Company's revolving credit facility. Costs of the program, which
primarily consist of the purchaser's financing cost of issuing commercial paper
backed by the receivables, totaled $277 and $645 for the six months ended June
30, 2002 and 2001, respectively, and have been classified as "Receivable
securitization and other expense, net" in the accompanying Consolidated
Statements of Operations. The Company, as agent for the purchaser of the
receivables, retains collection and administrative responsibilities for the
purchased receivables. The Company is required to maintain certain financial
ratios associated with the receivables included within the program. The Company
received a waiver from the bank with respect to non-compliance with delinquency
ratios related to receivables included within the program for June and July
2002.
NOTE 5: SHARE REPURCHASE PROGRAM
In April 2001, the Company's Board of Directors authorized a common share
repurchase program that provides for the Company to purchase, in the open market
and through negotiated transactions, up to 3,400 of its outstanding common
shares. As of August 9, 2002, the Company has repurchased approximately 1,322
shares for an aggregate purchase price of approximately $6,900 under the
program that is scheduled to expire in December 2002.
9
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6: EARNINGS PER SHARE
The Company follows Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share, for the calculation of earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share includes the dilution of common stock equivalents.
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net (loss) income $ (1,329) $ (708) $ (1,244) $ 1,466
======== ======== ======== ========
BASIC:
Common shares outstanding, net of treasury
shares, beginning of period 13,017 13,729 13,464 13,729
Weighted average common shares issued
during period 37 166 35 83
Weighted average treasury shares repurchased
during period (5) (83) (353) (43)
-------- -------- -------- --------
Weighted average common shares outstanding,
net of treasury shares, end of period 13,049 13,812 13,146 13,769
======== ======== ======== ========
Net (loss) income per common share $ (0.10) $ (0.05) $ (0.09) $ 0.11
======== ======== ======== ========
DILUTED:
Common shares outstanding, net of treasury
shares, beginning of period 13,017 13,729 13,464 13,729
Weighted average common shares issued
during period 37 166 35 83
Weighted average common share equivalents - - - 537
Weighted average treasury shares repurchased
during period (5) (83) (353) (43)
-------- -------- -------- --------
Weighted average common shares outstanding,
net of treasury shares, end of period 13,049 13,812 13,146 14,306
======== ======== ======== ========
Net (loss) income per common share $ (0.10) $ (0.05) $ (0.09) $ 0.10
======== ======== ======== ========
10
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7: RELATED PARTY NOTE RECEIVABLE:
On April 2, 2001, the Company and its Chief Executive Officer (Officer)
entered into a Promissory Note Agreement in the principal amount of
approximately $543. The non-interest bearing note was used by the Officer to
fund the exercise of stock options to purchase 167 common shares of the Company.
The promissory note is due and payable in full on April 2, 2008 or, if earlier,
within twelve months after the Officer's voluntary termination of employment
with the Company. The Officer simultaneously entered into a Stock Pledge
Agreement with the Company pledging the 167 common shares as security for the
promissory note.
NOTE 8: BUSINESS SEGMENT INFORMATION
The Company has two reportable segments: Consumer Products - Floorcare
and Consumer Products - Other. The operations of the Consumer Products -
Floorcare segment includes the design, assembly or sourcing, marketing and
distribution of a full line of plastic and metal vacuum cleaners. The primary
brand names associated with this segment include Dirt Devil and Royal. These
products are sold primarily to major mass merchant retailers and independent
dealers in North America. The operations of the Consumer Products - Other
segment represents business conducted by Privacy Technologies, Inc. and Product
Launch Partners, Inc., both of which are wholly owned subsidiaries of the
Company. Currently, the primary product line within this segment is the
TeleZapper, a telephone attachment that helps reduce unwanted computer-dialed
telemarketing calls. These products are sold primarily to major mass merchant
retailers and national electronic chains in North America. In August of 2002,
the Company licensed the TeleZapper intellectual property to a phone
manufacturer for the inclusion in telephones and answering machines.
The Company's reportable segments are distinguished by the nature of
products sold. The Company evaluates performance and allocates resources to
reportable segments primarily based on net sales and operating income. The
accounting policies of the reportable segments are the same as those described
in Note 1, the accounting policies footnote. The Company records its federal and
state tax assets and liabilities at corporate. There are no intersegment sales.
11
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8: BUSINESS SEGMENT INFORMATION (CONTINUED)
Financial information for the Company's Reportable Segments consisted
of the following:
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Net Sales
Consumer Products - Floorcare $ 82,788 $ 79,512 $ 166,016 $ 182,572
Consumer Products - Other 6,602 - 14,538 -
--------- --------- --------- ---------
Consolidated Total $ 89,390 $ 79,512 $ 180,554 $ 182,572
========= ========= ========= =========
(Loss) income from Operations
Consumer Products - Floorcare $ 312 $ (393) $ (744) $ 4,232
Consumer Products - Other (2,063) - (408) -
--------- --------- --------- ---------
Consolidated Total $ (1,751) $ (393) $ (1,152) $ 4,232
========= ========= ========= =========
Capital Expenditures
Consumer Products - Floorcare $ 1,197 $ 2,360 $ 3,068 $ 4,420
Consumer Products - Other 50 50 50 62
--------- --------- --------- ---------
Total for Reportable Segments 1,247 2,410 3,118 4,482
Corporate 191 1,832 477 3,463
--------- --------- --------- ---------
Consolidated Total $ 1,438 $ 4,242 $ 3,595 $ 7,945
========= ========= ========= =========
Depreciation and Amortization
Consumer Products - Floorcare $ 3,380 $ 2,934 $ 6,479 $ 5,951
Consumer Products - Other 153 67 258 67
--------- --------- --------- ---------
Total for Reportable Segments 3,533 3,001 6,737 6,018
Corporate 1,029 702 2,092 1,298
--------- --------- --------- ---------
Consolidated Total $ 4,562 $ 3,703 $ 8,829 $ 7,316
========= ========= ========= =========
Total Assets
Consumer Products - Floorcare $ 107,366 $ 111,909 $ 107,366 $ 111,909
Consumer Products - Other 5,299 1,200 5,299 1,200
--------- --------- --------- ---------
Total for Reportable Segments 112,665 113,109 112,665 113,109
Corporate 22,649 18,192 22,649 18,192
--------- --------- --------- ---------
Consolidated Total $ 135,314 $ 131,301 $ 135,314 $ 131,301
========= ========= ========= =========
12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------
Management's discussion and analysis of its financial position and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. Actual results could
differ from those estimates. Financial Reporting Release No. 60, which was
recently issued by the Securities and Exchange Commission ("SEC"), requires all
registrants, including the Company, to include a discussion of "Critical"
accounting policies or methods used in the preparation of financial statements.
Management believes that the critical accounting policies and areas that require
the most significant judgments and estimates to be used in the preparation of
the consolidated financial statements are revenue recognition including customer
based programs and incentives, allowance for doubtful accounts, useful lives of
tooling and other long lived assets and accrued warranty and customer returns.
Revenue Recognition - The Company's revenue recognition policy is to
recognize revenues when products are shipped. All sales are final upon shipment
of product to the customer. The Company records estimated reductions to net
sales for customer programs and incentive offerings including pricing
arrangements, promotions and other volume based incentives. If market conditions
were to soften, the Company may take actions to increase customer incentives,
possibly resulting in a reduction of net sales and gross margins at the time the
incentive is offered.
Allowance for Doubtful Accounts - The Company maintains an allowance
for trade accounts receivable for which collection on specific customer accounts
is doubtful. In determining collectibility, management reviews available
customer financial statement information, credit rating reports as well as other
external documents and public filings. When it is deemed probable that a
specific customer account is uncollectible, that balance is included in the
reserve calculation. Actual results could differ from these estimates under
different assumptions.
Useful Lives of Tooling - The Company capitalizes the cost of tooling
used in the production of its products by third party suppliers and global
contract manufacturers. The tooling is depreciated on a straight-line basis over
2-4 years, based on the nature of the product and the estimated product life
cycle. The useful lives are reviewed on a quarterly basis by management and
useful lives may be shortened if needed. In determining whether or not
shortening of useful lives is required, management reviews sell-through data at
retail, forecast demand and the timeframe of new product introductions.
Accrued Warranty and Customer Returns - The Company's return policy is
to replace, repair or issue credit for product under warranty. Returns received
during the current period are expensed as received and a reserve is maintained
for future returns from current shipments. Management calculates the reserve
utilizing historical return rates by product family. These rates are reviewed
and adjusted periodically. Management utilizes judgment for estimating return
rates of new products and adjusts those estimates as actual results become
available.
13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
-------------
RESULTS OF OPERATIONS
---------------------
Net sales increased 12.4% for the second quarter and decreased 1.1% for
the six-month period ended June 30, 2002, compared with the same periods in the
prior year. The increase in the second quarter net sales was primarily due to
shipments of the TeleZapper, which was introduced in the third quarter of 2001.
The decrease in net sales for the six months ended June 30, 2002 was primarily
due to lower shipments of carpet extractors and lower average wholesale prices
on floorcare products, partially offset by shipments of the TeleZapper. Overall
sales to the top 5 customers (all of which are major retailers) decreased in the
first six months of 2002, both in terms of dollars and as a percentage of total
net sales, accounting for approximately 69.6% as compared with approximately
74.5% in the first six months of 2001. The Company believes that its dependence
on sales to its largest customers will continue. Recently, several major
retailers have experienced significant financial difficulties and some,
including Kmart, have filed for protection from creditors under applicable
bankruptcy laws. As of June 30, 2002, the net exposure related to Kmart as well
as other customer balances for which management believes that collection is
doubtful was included in the calculation of allowance for doubtful accounts. The
Company sells its products to certain customers that are in bankruptcy
proceedings.
Gross margin, as a percent of net sales, decreased from 19.2% for the
second quarter 2001 to 18.3% in the second quarter 2002, and decreased from
20.0% for the six months ended June 30, 2001 to 19.2% for the six months ended
June 30, 2002. The gross margin percentage was negatively affected in 2002 by
lower average wholesale selling prices on the Company's floorcare products due
to continued heightened competition. This negative impact on gross margins was
partially offset by favorable TeleZapper margins, lower floorcare product
returns and lower costs on certain products.
Selling, general and administrative expenses increased 15.5% for the
second quarter of 2002 and increased 11.3% for the six-month period ended June
30, 2002, compared with the same periods in 2001. The increase in selling,
general and administrative expenses for 2002 was primarily due to increases in
advertising and promotional expenditures related to TeleZapper, employee related
benefit expenses, professional services associated with litigation and
depreciation expense associated with recent upgrades to the Company's
information technology.
Interest expense decreased 39.9% for the second quarter 2002, and
decreased 49.4% for the six-month period ended June 30, 2002 compared to the
same periods in 2001. The decrease in interest expense is the result of lower
effective borrowing rates and lower levels of variable rate borrowings to
finance working capital, capital expenditures and share repurchases.
Receivable securitization and other expense, net, principally reflects
the effect of the cost of the Company's trade accounts receivable securitization
program and foreign currency transaction gains or losses related to the
Company's North American assets.
Due to the factors discussed above, the Company had a loss before income
taxes for the second quarter and six-month period ended June 30, 2002 of
$(2,054) and $(1,924), respectively, compared to a loss before income taxes for
the second quarter 2001 and income before income taxes for the six-month period
ended June 30, 2001 of $(1,077) and $2,294, respectively.
14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
-------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company used cash generated from operations during the quarter ended
June 30, 2002 to fund its capital expenditures and share repurchases. Working
capital was $35,154 at June 30, 2002, an increase of 7.9% over December 31,
2001. Current assets decreased by $1,050 reflecting in part a decrease in
trade accounts receivable of $6,051, and a $1,455 decrease in cash,
substantially offset by an increase in inventory of $4,989, and a $989
increase in prepaid expenses and other. Current liabilities decreased by
$3,638, reflecting in part a $4,064 decrease in accrued advertising and
promotion, a $3,947 decrease in accrued salaries, benefits, and payroll taxes
and a $1,370 decrease in accrued income taxes, partially offset by an increase
of $6,010 in accounts payable.
In the first six months of 2002, the Company utilized $3,595 of cash for
capital expenditures, including approximately $1,100 of tooling related to a new
bagged upright and approximately $1,600 of tooling for various other floorcare
products.
At June 30, 2002, the Company had a collateralized revolving credit
facility with availability of up to $70,000 and a maturity date of April 1,
2005. Under the agreement, pricing options of the bank's base lending rate and
LIBOR rate are based on a defined formula. In addition, the Company pays a
commitment fee based on a defined formula on the unused portion of the facility.
The revolving credit facility contains covenants, which require, among other
things, the achievement of minimum net worth levels and the maintenance of
certain financial ratios. The Company was in compliance with all applicable
covenants as of June 30, 2002. The revolving credit facility is collateralized
by the assets of the Company. As long as the Company remains in compliance with
all covenants, the revolving credit facility permits share repurchases and
dividends based on a defined formula up to $19,970 as of June 30, 2002.
The Company also utilizes a revolving trade accounts receivable
securitization program to sell without recourse, through a wholly-owned
subsidiary, certain trade accounts receivable. Under the program, the maximum
amount allowed to be sold at any given time is $30,000, seasonally adjusted to
$35,000 from September to December. At June 30, 2002, the Company had received
approximately $17,300 from the sale of trade accounts receivable that has not
yet been collected. The proceeds from the sales were used to reduce borrowings
under the Company's revolving credit facility. Costs of the program, which
primarily consist of the purchaser's financing cost of issuing commercial paper
backed by the receivables, totaled $277 and $645 for the six months ended June
30, 2002 and 2001, respectively, and have been classified as "Receivable
securitization and other expense, net" in the accompanying Consolidated
Statements of Operations. The Company, as agent for the purchaser of the
receivables, retains collection and administrative responsibilities for the
purchased receivables. The Company is required to maintain certain financial
ratios associated with the receivables included within the program. The Company
received a waiver from the bank with respect to non-compliance with delinquency
ratios related to receivables included within the program for June and July
2002.
In April 2001, the Company's Board of Directors authorized a common share
repurchase program that provides for the Company to purchase, in the open market
and through negotiated transactions, up to 3,400 of its outstanding common
shares. As of August 9, 2002, the Company has repurchased approximately 1,322
shares for an aggregate purchase price of approximately $6,900 under the
program that is scheduled to expire in December 2002.
The Company believes that its revolving credit facilities along with cash
generated by operations will be sufficient to provide for the Company's
anticipated working capital and capital expenditure requirements for the next
twelve months, as well as any additional stock repurchases under the current
repurchase program.
15
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
-------------
QUARTERLY OPERATING RESULTS
---------------------------
The following table presents certain unaudited consolidated quarterly
operating information for the Company and includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of such information for the interim periods. Certain prior
period amounts have been reclassified to conform to current period presentation
(See Note 1 to Notes to Consolidated Financial Statements).
Three Months Ended
---------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2002 2002 2001 2001 2001 2001
-------- -------- -------- -------- -------- --------
Net sales $ 89,390 $ 91,164 $127,236 $111,503 $ 79,512 $103,060
Gross margin 16,344 18,348 32,663 26,461 15,269 21,172
Net (loss) income (1,329) 85 3,773 4,085 (708) 2,174
Net (loss) income
per share - diluted(a) $ (0.10) $ 0.01 $ 0.27 $ 0.29 $ (0.05) $ 0.15
(a) The sum of 2001 quarterly net income (loss) per common
share does not equal annual net income per common share
due to the change in the weighted average number of
common shares outstanding due to share repurchases.
The Company believes that a significant percentage of certain of its
products are given as gifts and therefore, sell in larger volumes during the
Christmas and other holiday shopping seasons. The Company's continued dependency
on its major customers, the timing of purchases by these major customers and the
timing of new product introductions cause quarterly fluctuations in the
Company's net sales. As a consequence, results in prior quarters are not
necessarily indicative of future results of operations.
OTHER
-----
The Company's Consumer Products - Floorcare business segment's most
significant competitors are Hoover, Eureka and Bissell in the upright vacuum and
carpet shampooer markets and, Black & Decker and Euro Pro in the hand-held
market. Many of these competitors and several others are subsidiaries or
divisions of companies that are more diversified and have greater financial
resources than the Company. The Company believes that the domestic vacuum
cleaner industry is a mature industry with modest annual growth in many of its
products but with a decline in certain other products. Competition is dependent
upon price, quality, extension of product lines, and advertising and promotion
expenditures. Additionally, competition is influenced by innovation in the
design of replacement models and by marketing and approaches to distribution.
The Company experiences extensive competition, including price pressure and
increased advertising by its competitors, in all product lines within the
Consumer Products - Floorcare segment. These trends are expected to continue
throughout 2002.
The Company's Consumer Products - Other business segment competes with a
variety of other consumer products and services. In addition to various state
"do not call" lists, the Federal Trade Commission is proposing a national "do
not call" list that may have an impact on the sales of the TeleZapper. In August
of 2002, the Company licensed the TeleZapper intellectual property to a phone
manufacturer for the inclusion in telephones and answering machines.
During the first quarter of 2002, the Company announced a licensing
arrangement with The Proctor and Gamble Company for the rights to a new carpet
cleaning system. The initial marketing plan for the product has been scaled
back, resulting in the Company seeking very limited retail distribution in 2002.
16
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
-------------
INFLATION
---------
The Company does not believe that inflation by itself has had a material
effect on the Company's results of operations. However, as the Company
experiences price increases from its suppliers, which may include increases due
to inflation, retail pressures may prevent the Company from increasing its
prices.
LITIGATION
----------
The Hoover Company (Hoover) filed a lawsuit in federal court, in the
Northern District of Ohio (case #1:00cv 0347), against the Company on February
4, 2000, under the patent, trademark, and unfair competition laws of the United
States. The Complaint asserts that the Company's Dirt Devil Easy Steamer
infringes three utility patents and two design patents held by Hoover, and also
that the Easy Steamer design infringes the trade dress of Hoover's carpet
extractor products. Recently, the Court has dismissed charges of infringement
against Royal regarding one of the three utility patents, and has found that the
Dirt Devil Easy Steamer infringes one claim of a second utility patent. The
Court refused to grant summary judgment of infringement regarding the third
utility patent, and also reserved judgment as to the validity of both of the
remaining utility patents. Royal has motions currently pending to dismiss the
charges of infringement of the design patents and the trademark claims. The
trial date of November 4, 2002, has been established. Hoover seeks damages,
injunction on future production, and legal fees. The Company is vigorously
defending the suit and believes it is without merit. In accordance with
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies", a loss is reasonably possible, however, no range of potential
loss can be estimated at this time. If Hoover were to prevail on all its
remaining claims, it could have a material adverse effect on the consolidated
financial position, results of operations, or cash flows of the Company.
The Company filed a lawsuit in federal court, in the Northern District of
Ohio (case #1:01cv 2775), against The Hoover Company (Hoover) on December 10,
2001, under the patent, trademark, and unfair competition laws of the United
States. The Complaint asserts that Hoover infringes certain patents relating to
bagless technology held by the Company. The Company seeks damages, injunction on
future production, and legal fees.
The Company filed a lawsuit in federal court, in the Northern District of
Ohio (case #1:02cv 0338), against Bissell Homecare, Inc. (Bissell) on February
22, 2002, under the patent, trademark, and unfair competition laws of the United
States. The Complaint asserts that Bissell infringes certain patents relating to
bagless technology held by the Company. The Company seeks damages, injunction on
future production, and legal fees.
Bissell Homecare, Inc. (Bissell) filed a lawsuit in federal court, in the
Eastern District of Michigan (case #02cv71079), against the Company on March 20,
2002, under the patent, trademark, and unfair competition laws of the United
States. On April 25, 2002, the Company filed a motion to transfer the case from
the Eastern District of Michigan to the Northern District of Ohio. On June 19,
2002, the Court transferred the case (now #1:02cv 1358) to the Northern District
of Ohio. The Complaint asserts that the Company's Dirt Devil Easy Steamer and
Platinum Force Extractor products infringe certain design and utility patents
held by Bissell. Bissell seeks damages, injunction on future production, and
legal fees. The Company is vigorously defending the suit and believes it is
without merit. If Bissell were to prevail on all its claims, it could have a
material adverse effect on the consolidated financial position, results of
operations, or cash flows of the Company.
Black & Decker Inc. and Black & Decker (U.S.) Inc. (B&D) filed a
lawsuit in federal court, Northern District of Illinois (case #02C 1765) against
the Company on March 8, 2002, under the patent, trademark, and unfair
competition laws of the United States. The Complaint asserts that the Company's
Roommate and Touch-Up vacuum cleaners infringe upon certain patents held by B&D.
The Company settled this suit with a payment of $300,000 during the quarter
ended June 30, 2002 with a remaining $300,000 due in January 2003. Under the
settlement the Company has the right to continue to sell the products through
the third quarter of 2003.
17
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
-------------
LITIGATION (CONTINUED)
----------
The Company filed a lawsuit in federal court, in the Northern District
of Ohio (case #1:02cv 1127), against White Consolidated, Ltd. (Eureka) on June
14, 2002, under the patent, trademark and unfair competition laws of the United
Sates. The Complaint asserts that Eureka infringes certain patents relating to
bagless technology held by the Company. The Company seeks damages, injunction on
future production, and legal fees.
The Company is involved in various other claims and litigation arising
in the normal course of business. The Company has product liability and general
liability insurance policies in amounts management believes to be reasonable.
There can be no assurance, however, that such insurance will be adequate to
cover all potential product or other liability claims against the Company. In
the opinion of management, the ultimate resolution of these actions will not
materially affect the consolidated financial position, results of operations, or
cash flows of the Company.
ACCOUNTING STANDARDS
--------------------
In fiscal 2001, the Emerging Issues Task Force ("EITF") issued EITF No.
00-14, "Accounting for Certain Sales Incentives," and EITF No. 00-25, "Vendor
Income Statement Characterization of Consideration to a Purchaser of the
Vendor's Products or Services." These pronouncements address the recognition,
measurement and statement of operations classification for certain sales
incentives and are effective January 1, 2002. The Company adopted these
pronouncements in the first quarter of fiscal 2002 and as a result certain items
previously included in selling, general and administrative expenses were
reclassified as a reduction of net sales. Additionally, prior period amounts
were reclassified to conform to the new requirements. The impact of these two
issues resulted in a reduction of net sales of $891 and $935 for the quarters
ended June 30, 2002 and 2001, respectively and $1,589 and $2,397 for the
six-month periods ended June 30, 2002 and 2001, respectively. These amounts,
consisting principally of promotional allowances to the Company's retail
customers, were previously recorded as selling, general and administrative
expenses; therefore, there was no impact to net income or loss for either
period.
The Company expects that the implementation of the above standards will
not have a material impact on its consolidated financial position, results of
operations or cash flows.
FORWARD-LOOKING STATEMENTS
--------------------------
Forward-looking statements in this Form 10Q are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. Potential risks and
uncertainties include, but are not limited to: the financial strength of the
retail industry particularly in the major mass retail channel; the impact of
Kmart's recent bankruptcy filing on Royal's future sales and earnings; the
impact of an adverse outcome in any of the patent infringement cases; the
competitive pricing and aggressive product development environment within the
floorcare industry; the impact of private-label programs by mass retailers; the
cost and effectiveness of planned advertising, marketing and promotional
campaigns; the success at retail and the continued acceptance by consumers of
the Company's new products, including the Company's bagless uprights, carpet
shampooers, Carpet CPR(TM) and its first consumer electronics product, the
TeleZapper(TM), the dependence upon the Company's ability to continue to
successfully develop and introduce innovative products; the uncertainty of the
Company's global suppliers to continuously supply sourced finished goods and
component parts; and general business and economic conditions.
18
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders
------ ---------------------------------------------------
(a) The Company's annual meeting of shareholders was held
April 25, 2002,
(b) At the annual meeting, the Company's shareholders
elected Messrs. Jack Kahl Jr., Michael J. Merriman,
and John P. Rochon, as Class I Directors for a
two-year term which expires at the annual
shareholders meeting in 2004.
The term of office of Messrs. R. Louis Schneeberger,
E. Patrick Nalley and Joseph B. Richey II, the Class
II Directors, continued after the 2002 meeting; such
term expires at the annual shareholders meeting in
2003.
(c) At the annual meeting, the Company's shareholders
ratified the appointment of PricewaterhouseCoopers
L.L.P. as auditors of the Company for 2002. The
holders of 11,664,172 common shares voted to ratify
the appointment, the holders of 169,579 common shares
voted against the ratification, and the holders of
9,938 common shares abstained.
The following tabulation represents voting for the
Class I Directors
WITHHELD
Name FOR AUTHORITY
---- --- ---------
Jack Kahl 11,751,759 91,930
Michael J. Merriman 11,750,259 93,430
John P. Rochon 11,734,891 108,798
(d) Not applicable
ITEM 6 - Exhibits and Reports on Form 8-K
------ --------------------------------
The Exhibits filed herewith are set forth on the Index to
Exhibits filed as part of this report.
Forms 8-K - None
The following documents are furnished as an exhibit and
numbered pursuant to Item 601 of Regulation S-K:
None
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Royal Appliance Mfg. Co.
----------------------------------------------------
(Registrant)
/s/ Michael J. Merriman
----------------------------------------------------
Michael J. Merriman
Chief Executive Officer, President and Director
(Principal Executive Officer)
Date: August 12, 2002 /s/ Richard G. Vasek
--------------- ----------------------------------------------------
Richard G. Vasek
Chief Financial Officer, Vice President - Finance
and Secretary (Principal Financial Officer)
20
INDEX TO EXHIBITS
-----------------
PAGE NUMBER
-----------
10(q) Royal Appliance Phantom Stock Plan dated February 11, 2002
10(r) Royal Appliance Phantom Stock Plan for Directors dated
April 25, 2002
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
21